Forex News

• GBP/JPY fell to a daily low of 172.85 as it seems to be correcting overbought conditions.
• UK reported strong PMIs revisions.
• British yields to limit Sterling’s losses.

During Monday’s session, the Sterling Pound weakened across the board, trading in the 174.36 - 172.85 range and failing to capitalize on rising British bond yields following strong UK PMI revisions. On the other hand, the Japanese Yen traded mixed against its rivals and continues to gain traction on rumours of authorities from Japan intervening in the markets.

The UK reported strong PMI revisions, with eyes on the next BoE decision

According to the latest May reports by S&P Global/CPIS, the Composite Purchasing Managers' Index (PMI) was upwardly revised to 54 from the preliminary reading of 53.9. Likewise, the Services PMI was revised to 55.2 from 55.1.

As a reaction, the British bond yields saw gains across the curve while the British  Financial Times Stock Exchange 100 Index (FTSE), indicating that markets seem to be waiting for more action from the Bank of England (BoE). In that sense, the 10-year bond yield increased to 4.26%, reflecting a gain of 1.13% on the day. Similarly, the 2-year yield stands at 4.49%, indicating an increase of 1.18%. The 5-year yield also saw an upward movement, reaching 4.21%, with a gain of 1.13% respectively.

On the other hand, as more interest rate hikes and stocks tend to be negatively correlated, the FTSE lost more than 0.1% following the release of the data. However, inflation and labour market data that will be released throughout June will continue to model the expectations for the following BoE interest rate decision and hence direct the movements of the GBP price dynamics.

Levels to watch

According to the daily chart, the GBP/JPY holds a neutral to bullish outlook for the short term. The bulls have lost some steam as buyers seem to be taking profits. In addition, the Relative Strength Index (RSI) despite getting rejected at the overbought threshold, stays flat in positive territory while the Moving Average Convergence Divergence (MACD) fell slightly to negative territory.

In case the buyers regain momentum, a move above the 173.50 zone would suggest a continuation of the bullish trend for the GBP/JPY, with the next resistances at the 173.95 zone and 174.00 level. On the other hand, immediate support is seen at the 172.40 level, followed by the psychological mark at 172.00 and the 171.80 area.